1. Consider the mattress market for "memory foam" mattresses. The market demand is p(q) = 5000 q and the market supply is MC(q) = 30 + q. Marginal revenue for the firm is MR(q) = 5000 2q.

a. Solve for the competitive equilibrium

b. Calculate the consumer and producer surplus for the competitive solution

c. Now assume that there is a monopolist (call them "Tempurpedic") in the market. Solve for the monopolist solution.

d. Calculate the consumer and producer surplus from the monopolist solution There is a small competitor in the market, "Nectar", who makes (seemingly) identical mattresses to Tempurpedic along all margins (quality, comfort, warranty, etc.; for what its worth, I think they feel the same too). However, Nectar beds are approximately half the cost of Tempurpedic.

e. Provide at least one (plausible) reason why Tempurpedic can set prices (much) higher than Nectar

f. Provide at least one (plausible) reason why Nectar would want to price (much) lower than Tempurpedic.

g. Provide at least one (plausible) reason why Nectar would not want to price lower than Tempurpedic 1

h. Why would Tempurpedic not want to match prices with Nectar? i. Suppose Tempurpedic has a 5 year warranty and Nectar has a 10 year warranty. How would this affect your perception of the prices they have set? Say it's reversed, how would that affect your perception of the prices?

j. How does consumers' awareness of Tempurpedic and Nectar being identical products affect demand? What if they are not aware? What if they are?